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The Egg House just borrowed $660,000 to build a new restaurant. The loan terms call for equal...

Question:

The Egg House just borrowed $660,000 to build a new restaurant. The loan terms call for equal annual payments at the end of each year. The loan is for 15 years at an APR of 8.35 percent. How much of the first annual payment will be used to reduce the principal balance? $51,420.90 $48,911.08 $23,653.18 $18,211.08 $21,311.62

Loan Amortization:

A loan is a sum of money borrowed at a specified rate of interest. The loan can be repaid as fully amortized, interest only etc. In the fully amortized loan, equal installments are made which consists of interest and some principal portion.

Answer and Explanation:

The principal portion in the first payment is $23,653.18

  • Principal of loan = $660,000
  • Number of annual payments, n = 15
  • Rate of interest, r = 8.35% =...

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Loan Types: Pure Discount, Interest-Only & Amortization

from Finance 101: Principles of Finance

Chapter 6 / Lesson 6
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